10-Q 1 c65955e10vq.htm FORM 10-Q e10vq
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
(Mark One)
 
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
    For the Quarterly Period Ended September 30, 2011
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-12387
 
TENNECO INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State or other jurisdiction of incorporation or organization)
  76-0515284
(I.R.S. Employer Identification No.)
     
500 North Field Drive, Lake Forest, Illinois
(Address of principal executive offices)
  60045
(Zip Code)
 
Registrant’s telephone number, including area code: (847) 482-5000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes o     No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
 
Common Stock, par value $0.01 per share: 60,296,327 shares outstanding as of October 31, 2011.
 


 

 
TABLE OF CONTENTS
 
         
    Page
 
       
    4  
Tenneco Inc. and Consolidated Subsidiaries —
       
    4  
    5  
    6  
    7  
    8  
    9  
    11  
    39  
    70  
    70  
       
Item 1. Legal Proceedings
    *  
    71  
    71  
Item 3. Defaults Upon Senior Securities
    *  
Item 4. Removed and Reserved
    *  
Item 5. Other Information
    *  
    *  
 EX-12
 EX-15.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT
 
 
* No response to this item is included herein for the reason that it is inapplicable or the answer to such item is negative.


1


Table of Contents

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning, among other things, our prospects and business strategies. These forward-looking statements are included in various sections of this report, including the section entitled “Outlook” appearing in Item 2 of this report. The words “may,” “will,” “believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof), identify these forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, these expectations may not prove to be correct. Because these forward-looking statements are also subject to risks and uncertainties, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include:
 
  •  general economic, business and market conditions;
 
  •  our ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;
 
  •  changes in capital availability or costs, including increases in our cost of borrowing (i.e., interest rate increases), the amount of our debt, our ability to access capital markets at favorable rates, and the credit ratings of our debt;
 
  •  changes in consumer demand, prices and our ability to have our products included on top selling vehicles, including any shifts in consumer preferences away from light trucks, which tend to be higher margin products for our customers and us, to other lower margin vehicles, for which we may or may not have supply contracts;
 
  •  changes in automotive and commercial vehicle manufacturers’ production rates and their actual and forecasted requirements for our products, such as the significant production cuts during 2008 and 2009 by automotive manufacturers in response to difficult economic conditions;
 
  •  the overall highly competitive nature of the automobile and commercial vehicle parts industries, and any resultant inability to realize the sales represented by our awarded book of business (which is based on anticipated pricing and volumes for the applicable program over its life);
 
  •  the loss of any of our large original equipment manufacturer (“OEM”) customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OEMs;
 
  •  industrywide strikes, labor disruptions at our facilities or any labor or other economic disruptions at any of our significant customers or suppliers or any of our customers’ other suppliers (such as the 2008 strike at American Axle, which disrupted our supply of products for significant General Motors platforms);
 
  •  increases in the costs of raw materials, including our ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, low cost country sourcing, and price recovery efforts with aftermarket and OE customers;
 
  •  the negative impact of higher fuel prices on transportation and logistics costs, raw material costs and discretionary purchases of vehicles or aftermarket products;
 
  •  the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the longer product lives of vehicle parts;
 
  •  our ability to successfully execute cash management, restructuring and other cost reduction plans and to realize anticipated benefits from these plans;
 
  •  costs related to product warranties and other customer satisfaction actions;
 
  •  the impact of consolidation among vehicle parts suppliers and customers on our ability to compete;


2


Table of Contents

 
  •  changes in distribution channels or competitive conditions in the markets and countries where we operate, including the impact of changes in distribution channels for aftermarket products on our ability to increase or maintain aftermarket sales;
 
  •  the cost and outcome of existing and any future legal proceedings, including, but not limited to, proceedings against us or our customers relating to intellectual property rights;
 
  •  economic, exchange rate and political conditions in the countries where we operate or sell our products;
 
  •  customer acceptance of new products;
 
  •  new technologies that reduce the demand for certain of our products or otherwise render them obsolete;
 
  •  our ability to realize our business strategy of improving operating performance;
 
  •  our ability to successfully integrate any acquisitions that we complete and effectively manage our joint ventures and other third-party partnerships;
 
  •  changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies;
 
  •  changes in accounting estimates and assumptions, including changes based on additional information;
 
  •  any changes by International Standards Organization (ISO), Technical Specifications (TS) and other such committees in their certification processes for processes and products, which may have the effect of delaying or hindering our ability to bring new products to market;
 
  •  the impact of changes in and compliance with laws and regulations, including environmental laws and regulations, which may result in our incurrence of environmental liabilities in excess of the amount reserved, the implementation of mandated timelines for worldwide emission regulation, which could impact the demand for certain of our products, and any changes to the timing of the funding requirements for our pension and other postretirement benefit liabilities;
 
  •  decisions by federal, state and local governments to provide (or discontinue) incentive programs related to automobile or other vehicle purchases;
 
  •  the potential impairment in the carrying value of our long-lived assets and goodwill or our deferred tax assets;
 
  •  potential volatility in our effective tax rate;
 
  •  natural disasters, such as the recent earthquake in Japan and flooding in Thailand, and any resultant disruptions in the supply of goods or services to us or in production or demand by our customers;
 
  •  acts of war and/or terrorism, as well as actions taken or to be taken by the United States and other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where we operate; and
 
  •  the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control.
 
The risks included here are not exhaustive. Refer to “Part I, Item 1A — Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2010, for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.


3


Table of Contents

 
PART I.
 
FINANCIAL INFORMATION
 
ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED)
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
Tenneco Inc.:
 
We have reviewed the accompanying condensed consolidated balance sheet of Tenneco Inc. and consolidated subsidiaries as of September 30, 2011, and the related condensed consolidated statements of income (loss), of cash flows, and of comprehensive income for the three-month and nine-month periods ended September 30, 2011 and 2010, and of changes in shareholders’ equity for the nine-month periods ended September 30, 2011 and 2010. These interim financial statements are the responsibility of the Company’s management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2010, and the related consolidated statements of income (loss), of cash flows, of changes in shareholders’ equity and of comprehensive income (loss) for the year then ended (not presented herein), and in our report dated February 25, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
 
/s/ PricewaterhouseCoopers LLP
 
PricewaterhouseCoopers LLP
Chicago, Illinois
November 7, 2011
 
 
The “Report of Independent Registered Public Accounting Firm” included above is not a “report” or “part of a Registration Statement” prepared or certified by an independent accountant within the meaning of Sections 7 and 11 of the Securities Act of 1933, and the accountants’ Section 11 liability does not extend to such report.


4


Table of Contents

 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,
    September 30,
    September 30,
    September 30,
 
    2011     2010     2011     2010  
    (Millions Except Share and Per Share Amounts)  
 
Revenues
                               
Net sales and operating revenues
  $ 1,773     $ 1,542     $ 5,421     $ 4,360  
                                 
Costs and expenses
                               
Cost of sales (exclusive of depreciation and amortization shown below)
    1,492       1,280       4,523       3,575  
Goodwill impairment charge
    11             11        
Engineering, research, and development
    32       30       102       90  
Selling, general, and administrative
    101       109       328       307  
Depreciation and amortization of other intangibles
    51       55       156       163  
                                 
      1,687       1,474       5,120       4,135  
                                 
Other income (expense)
                               
Loss on sale of receivables
    (1 )     (1 )     (4 )     (3 )
Other income (expense)
    (1 )           (6 )     (3 )
                                 
      (2 )     (1 )     (10 )     (6 )
                                 
Earnings before interest expense, income taxes, and noncontrolling interests
    84       67       291       219  
Interest expense (net of interest capitalized of $1 million in each of the three months ended September 30, 2011 and 2010, respectively and $3 million in each of the nine months ended September 30, 2011 and 2010, respectively)
    27       36       81       100  
Income tax expense
    21       15       65       45  
                                 
Net income
    36       16       145       74  
                                 
Less: Net income attributable to noncontrolling interests
    6       6       18       17  
                                 
Net income attributable to Tenneco Inc. 
  $ 30     $ 10     $ 127     $ 57  
                                 
Earnings per share
                               
Weighted average shares of common stock outstanding —
                               
Basic
    59,793,866       59,235,282       59,866,717       59,102,041  
Diluted
    61,541,476       61,079,919       61,738,278       60,859,093  
Basic earnings per share of common stock
  $ 0.51     $ 0.17     $ 2.12     $ 0.97  
Diluted earnings per share of common stock
  $ 0.49     $ 0.17     $ 2.06     $ 0.94  
 
The accompanying notes to the condensed consolidated financial statements are an integral part of these condensed consolidated statements of income.


5


Table of Contents

TENNECO INC.
 
(Unaudited)
 
                 
    September 30,
    December 31,
 
    2011     2010  
    (Millions)  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 163     $ 233  
Receivables —
               
Customer notes and accounts, net
    1,073       796  
Other
    44       30  
Inventories —
               
Finished goods
    250       222  
Work in process
    194       164  
Raw materials
    131       118  
Materials and supplies
    46       43  
Deferred income taxes
    42       38  
Prepayments and other
    160       146  
                 
Total current assets
    2,103       1,790  
                 
Other assets:
               
Long-term receivables, net
    13       9  
Goodwill
    75       89  
Intangibles, net
    33       32  
Deferred income taxes
    87       92  
Other
    99       105  
                 
      307       327  
                 
Plant, property, and equipment, at cost
    3,136       3,109  
Less — Accumulated depreciation and amortization
    (2,110 )     (2,059 )
                 
      1,026       1,050  
                 
Total assets
  $ 3,436     $ 3,167  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
               
Short-term debt (including current maturities of long-term debt)
  $ 70     $ 63  
Trade payables
    1,181       1,048  
Accrued taxes
    46       51  
Accrued interest
    23       13  
Accrued liabilities
    246       227  
Other
    56       66  
                 
Total current liabilities
    1,622       1,468  
                 
Long-term debt
    1,234       1,160  
Deferred income taxes
    50       56  
Postretirement benefits
    279       311  
Deferred credits and other liabilities
    121       125  
Commitments and contingencies
               
                 
Total liabilities
    3,306       3,120  
                 
Redeemable noncontrolling interests
    10       12  
                 
Tenneco Inc. Shareholders’ equity:
               
Common stock
    1       1  
Premium on common stock and other capital surplus
    3,012       3,008  
Accumulated other comprehensive loss
    (265 )     (237 )
Retained earnings (accumulated deficit)
    (2,409 )     (2,536 )
                 
      339       236  
Less — Shares held as treasury stock, at cost
    256       240  
                 
Total Tenneco Inc. shareholders’ equity
    83       (4 )
                 
Noncontrolling interests
    37       39  
                 
Total equity
    120       35  
                 
Total liabilities, redeemable noncontrolling interests and equity
  $ 3,436     $ 3,167  
                 
 
The accompanying notes to the condensed consolidated financial statements are an integral part of these condensed consolidated balance sheets.


6


Table of Contents

TENNECO INC.
 
(Unaudited)
 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,
    September 30,
    September 30,
    September 30,
 
    2011     2010     2011     2010  
          (Millions)        
 
Operating Activities
                               
Net income
  $ 36     $ 16     $ 145     $ 74  
Adjustments to reconcile net income to cash provided by operating activities —
                               
Goodwill impairment charge
    11             11        
Depreciation and amortization of other intangibles
    51       55       156       163  
Deferred income taxes
    2       (6 )     (3 )     (4 )
Stock-based compensation
    2       2       6       7  
Loss on sale of assets
    2             3       3  
Changes in components of working capital —
                               
(Increase) decrease in receivables
    (24 )     (81 )     (314 )     (374 )
(Increase) decrease in inventories
    (25 )     (52 )     (85 )     (123 )
(Increase) decrease in prepayments and other current assets
    6       (3 )     (18 )     (1 )
Increase (decrease) in payables
    25       33       159       265  
Increase (decrease) in accrued taxes
    (7 )     12       (7 )     13  
Increase (decrease) in accrued interest
    9       7       9       8  
Increase (decrease) in other current liabilities
    (2 )     15       15       34  
Changes in long-term assets
    1       3       (2 )     4  
Changes in long-term liabilities
    (10 )     18       (31 )     (3 )
Other
    3       (2 )           (2 )
                                 
Net cash provided by operating activities
    80       17       44       64  
                                 
Investing Activities
                               
Proceeds from the sale of assets
          2       4       3  
Cash payments for plant, property, and equipment
    (50 )     (33 )     (145 )     (105 )
Cash payments for software related intangible assets
    (4 )     (3 )     (10 )     (11 )
Other
          (1 )           1  
                                 
Net cash used by investing activities
    (54 )     (35 )     (151 )     (112 )
                                 
Financing Activities
                               
Purchase of common stock under the share repurchase program
    (5 )           (16 )      
Issuance of long-term debt
    1       225       5       380  
Debt issuance cost of long-term debt
          (5 )     (1 )     (14 )
Retirement of long-term debt
          (246 )     (23 )     (383 )
Increase (decrease) in bank overdrafts
    (5 )     10       3       12  
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt
    20       63       108       83  
Capital contribution from noncontrolling interest partner
                1        
Purchase of additional noncontrolling equity interest
    (4 )           (4 )      
Distributions to noncontrolling interest partners
    (10 )     (3 )     (20 )     (14 )
                                 
Net cash provided (used) by financing activities
    (3 )     44       53       64  
                                 
Effect of foreign exchange rate changes on cash and cash equivalents
    (21 )     12       (16 )     1  
                                 
Increase (decrease) in cash and cash equivalents
    2       38       (70 )     17  
Cash and cash equivalents, July 1 and January 1, respectively
    161       146       233       167  
                                 
Cash and cash equivalents, September 30 (Note)
  $ 163     $ 184     $ 163     $ 184  
                                 
Supplemental Cash Flow Information
                               
Cash paid during the period for interest
  $ 18     $ 28     $ 71     $ 89  
Cash paid during the period for income taxes (net of refunds)
    25       18       58       42  
Non-cash Investing and Financing Activities
                               
Period end balance of trade payables for plant, property, and equipment
  $ 23     $ 12     $ 23     $ 12  
 
 
Note:  Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.
 
The accompanying notes to the condensed consolidated financial statements are an integral part of these
condensed consolidated statements of cash flows.


7


Table of Contents

 
                                 
    Nine Months Ended September 30,  
    2011     2010  
    Shares     Amount     Shares     Amount  
    (Millions Except Share Amounts)  
 
Tenneco Inc. Shareholders:
                               
Common Stock
                               
Balance January 1
    61,541,760     $ 1       60,789,739     $ 1  
Issued pursuant to benefit plans
    52,394             172,022        
Stock options exercised
    323,039             301,029        
                                 
Balance September 30
    61,917,193       1       61,262,790       1  
                                 
Premium on Common Stock and Other Capital Surplus
                               
Balance January 1
            3,008               3,005  
Purchase of additional noncontrolling equity interest
            (2 )             (11 )
Premium on common stock issued pursuant to benefit plans
            6               8  
                                 
Balance September 30
            3,012               3,002  
                                 
Accumulated Other Comprehensive Loss
                               
Balance January 1
            (237 )             (212 )
Other comprehensive loss
            (28 )             (28 )
                                 
Balance September 30
            (265 )             (240 )
                                 
Retained Earnings (Accumulated Deficit)
                               
Balance January 1
            (2,536 )             (2,575 )
Net income attributable to Tenneco Inc. 
            127               57  
                                 
Balance September 30
            (2,409 )             (2,518 )
                                 
Less — Common Stock Held as Treasury Stock, at Cost
                               
Balance January 1
    1,294,692       240       1,294,692       240  
Purchase of common stock through stock repurchase program
    400,000       16              
                                 
Balance September 30
    1,694,692       256       1,294,692       240  
                                 
Total Tenneco Inc. shareholders’ equity
          $ 83             $ 5  
                                 
Noncontrolling Interests:
                               
Balance January 1
          $ 39             $ 32  
Net income
            13               11  
Sale of twenty percent equity interest to Tenneco Inc. 
                          (4 )
Other comprehensive income
            (1 )             2  
Dividends declared
            (14 )             (8 )
                                 
Balance September 30
          $ 37             $ 33  
                                 
Total equity
          $ 120             $ 38  
                                 
 
The accompanying notes to the condensed consolidated financial statements are an integral part of these condensed consolidated statements of changes in shareholders’ equity.


8


Table of Contents

TENNECO INC.
 
 
                                                 
    Three Months Ended September 30, 2011  
    Tenneco Inc.     Noncontrolling Interests     Total  
    Accumulated
          Accumulated
          Accumulated
       
    Other
          Other
          Other
       
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
 
    Income
    Income
    Income
    Income
    Income
    Income
 
    (Loss)     (Loss)     (Loss)     (Loss)     (Loss)     (Loss)  
    (Millions)  
 
Net Income
          $ 30             $ 6             $ 36  
                                                 
Accumulated Other Comprehensive Income (Loss)
                                               
Cumulative Translation Adjustment
                                               
Balance July 1
  $ 59             $ 5             $ 64          
Translation of foreign currency statements
    (82 )     (82 )     (1 )     (1 )     (83 )     (83 )
                                                 
Balance September 30
    (23 )             4               (19 )        
                                                 
Additional Liability for Pension Benefits
                                               
Balance July 1
    (246 )                           (246 )        
                                                 
Additional Liability for Pension and Postretirement Benefits, net of tax
    4       4                       4       4  
                                                 
Balance September 30
    (242 )                           (242 )        
                                                 
Balance September 30
  $ (265 )           $ 4             $ (261 )        
                                                 
Other Comprehensive Income (Loss)
            (78 )             (1 )             (79 )
                                                 
Comprehensive Income (Loss)
          $ (48 )           $ 5             $ (43 )
                                                 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
                                                 
    Three Months Ended September 30, 2010  
    Tenneco Inc.     Noncontrolling Interests     Total  
    Accumulated
          Accumulated
          Accumulated
       
    Other
          Other
          Other
       
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
 
    Income
    Income
    Income
    Income
    Income
    Income
 
    (Loss)     (Loss)     (Loss)     (Loss)     (Loss)     (Loss)  
                (Millions)              
 
Net Income
          $ 10             $ 6             $ 16  
                                                 
Accumulated Other Comprehensive Income (Loss)
                                               
Cumulative Translation Adjustment
                                               
Balance July 1
  $ (72 )           $ 3             $ (69 )        
Translation of foreign currency statements
    75       75       1       1       76       76  
                                                 
Balance September 30
    3               4               7          
                                                 
Additional Liability for Pension Benefits
                                               
Balance July 1
    (246 )                           (246 )        
                                                 
Additional Liability for Pension and Postretirement Benefits, net of tax
    3       3                     3       3  
                                                 
Balance September 30
    (243 )                           (243 )        
                                                 
Balance September 30
  $ (240 )           $ 4             $ (236 )        
                                                 
Other Comprehensive Income
            78               1               79  
                                                 
Comprehensive Income
          $ 88             $ 7             $ 95  
                                                 
 
The accompanying notes to the condensed consolidated financial statements are in an integral part
of these statements of comprehensive income.


9


Table of Contents

TENNECO INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
                                                 
    Nine Months Ended September 30, 2011  
    Tenneco Inc.     Noncontrolling Interests     Total  
    Accumulated
          Accumulated
          Accumulated
       
    Other
          Other
          Other
       
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
 
    Income
    Income
    Income
    Income
    Income
    Income
 
    (Loss)     (Loss)     (Loss)     (Loss)     (Loss)     (Loss)  
                (Millions)              
 
Net Income
          $ 127             $ 18             $ 145  
                                                 
Accumulated Other Comprehensive Income (Loss)
                                               
Cumulative Translation Adjustment
                                               
Balance January 1
  $ 8             $ 5             $ 13          
Translation of foreign currency statements
    (31 )     (31 )     (1 )     (1 )     (32 )     (32 )
                                                 
Balance September 30
    (23 )             4               (19 )        
                                                 
Additional Liability for Pension Benefits
                                               
Balance January 1
    (250 )                           (250 )        
                                                 
Additional Liability for Pension and Postretirement Benefits, net of tax
    8       8                       8       8  
                                                 
Balance September 30
    (242 )                           (242 )        
                                                 
Balance September 30
  $ (265 )           $ 4             $ (261 )        
                                                 
Other Comprehensive Income (Loss)
            (23 )             (1 )             (24 )
                                                 
Comprehensive Income
          $ 104             $ 17             $ 121  
                                                 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
                                                 
    Nine Months Ended September 30, 2010  
    Tenneco Inc.     Noncontrolling Interests     Total  
    Accumulated
          Accumulated
          Accumulated
       
    Other
          Other
          Other
       
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
    Comprehensive
 
    Income
    Income
    Income
    Income
    Income
    Income
 
    (Loss)     (Loss)     (Loss)     (Loss)     (Loss)     (Loss)  
                (Millions)              
 
Net Income
          $ 57             $ 17             $ 74  
                                                 
Accumulated Other Comprehensive Income (Loss)
                                               
Cumulative Translation Adjustment
                                               
Balance January 1
  $ 37             $             $ 37          
Translation of foreign currency statements
    (34 )     (34 )     4       4       (30 )     (30 )
                                                 
Balance September 30
    3               4               7          
                                                 
Additional Liability for Pension Benefits
                                               
Balance January 1
    (249 )                           (249 )        
                                                 
Additional Liability for Pension and Postretirement Benefits, net of tax
    6       6                       6       6  
                                                 
Balance September 30
    (243 )                           (243 )        
                                                 
Balance September 30
  $ (240 )           $ 4             $ (236 )        
                                                 
Other Comprehensive Income (Loss)
            (28 )             4               (24 )
                                                 
Comprehensive Income
          $ 29             $ 21             $ 50  
                                                 
 
The accompanying notes to the condensed consolidated financial statements are in an integral part
of these statements of comprehensive income.


10


Table of Contents

TENNECO INC.
 
(Unaudited)
 
(1)   Consolidation and Presentation
 
As you read the accompanying financial statements you should also read our Annual Report on Form 10-K for the year ended December 31, 2010.
 
In our opinion, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly Tenneco Inc.’s financial position, results of operations, cash flows, changes in shareholders’ equity, and comprehensive income (loss) for the periods indicated. We have prepared the unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for annual financial statements.
 
Our condensed consolidated financial statements include all majority-owned subsidiaries. We carry investments in 20 percent to 50 percent owned companies in which the Company does not have a controlling interest, as equity method investments, at cost plus equity in undistributed earnings since the date of acquisition and cumulative translation adjustments. We have eliminated all intercompany transactions. We have evaluated all subsequent events through the date the financial statements were issued.
 
(2)   Financial Instruments
 
The carrying and estimated fair values of our financial instruments by class at September 30, 2011 and December 31, 2010 were as follows:
 
                                 
    September 30, 2011   December 31, 2010
    Carrying Amount   Fair Value   Carrying Amount   Fair Value
    (Millions)
 
Long-term debt (including current maturities)
  $ 1,236     $ 1,245     $ 1,162     $ 1,201  
Instruments with off-balance sheet risk:
                               
Foreign exchange forward contracts:
                               
Asset derivative contracts
                2       2  
Liability derivative contracts
    2       2              
 
Asset and Liability Instruments — The fair value of cash and cash equivalents, short and long-term receivables, accounts payable, and short-term debt was considered to be the same as or was not determined to be materially different from the carrying amount.
 
Long-term Debt — The fair value of our public fixed rate senior notes is based on quoted market prices. The fair value of our private borrowings under our senior credit facility and other long-term debt instruments is based on the market value of debt with similar maturities, interest rates and risk characteristics.
 
Foreign exchange forward contracts — We use derivative financial instruments, principally foreign currency forward purchase and sales contracts with terms of less than one year, to hedge our exposure to changes in foreign currency exchange rates. Our primary exposure to changes in foreign currency rates results from intercompany loans made between affiliates to minimize the need for borrowings from third parties. Additionally, we enter into foreign currency forward purchase and sale contracts to mitigate our exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. We manage counter-party credit risk by entering into derivative financial instruments with major financial institutions that can be expected to fully perform under the terms of such agreements. We do not enter into derivative financial instruments for speculative purposes. The fair value of our foreign currency forward contracts is based on an internally developed model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics. We record the change in


11


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
fair value of these foreign exchange forward contracts as part of currency gains (losses) within cost of sales in the condensed consolidated statements of income. The fair value of foreign exchange forward contracts are recorded in prepayments and other current assets or other current liabilities in the condensed consolidated balance sheet. The fair value of our foreign exchange forward contracts, presented on a gross basis by derivative contract at September 30, 2011 and December 31, 2010, respectively, was as follows:
 
                                                 
    Fair Value of Derivative Instruments
    September 30, 2011   December 31, 2010
    Asset
  Liability
      Asset
  Liability
   
    Derivatives   Derivatives   Total   Derivatives   Derivatives   Total
    (Millions)
 
Foreign exchange forward contracts
  $     $ 2     $ 2     $ 2     $     $ 2  
 
The fair value of our recurring financial assets and liabilities at September 30, 2011 and December 31, 2010 are as follows:
 
                                                 
    September 30, 2011   December 31, 2010
    Level 1   Level 2   Level 3   Level 1   Level 2   Level 3
    (Millions)
 
Financial Assets:
                                               
Foreign exchange contracts
    n/a     $       n/a       n/a     $ 2       n/a  
Financial Liabilities:
                                               
Foreign exchange contracts
    n/a     $ 2       n/a       n/a     $       n/a  
 
The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:
 
Level 1 — Quoted prices in active markets for identical assets or liabilities.
 
Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
 
Level 3 — Unobservable inputs based on our own assumptions.
 
The following table summarizes by major currency the notional amounts for foreign currency forward purchase and sale contracts as of September 30, 2011 (all of which mature in 2011):
 
             
        Notional Amount
        in Foreign Currency
        (Millions)
 
Australian dollars   —Purchase     2  
British pounds
  —Purchase     4  
European euro
  —Sell     (9 )
Japanese Yen
  —Purchase     442  
South African rand
  —Purchase     162  
U.S. dollars
  —Purchase     1  
    —Sell     (23 )
Other
  —Sell     (1 )
 
(3)   Long-Term Debt and Financing Arrangements
 
Our financing arrangements are primarily provided by a committed senior secured financing arrangement with a syndicate of banks and other financial institutions. The arrangement is secured by substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries, as well as guarantees by our material domestic subsidiaries.


12


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
On June 3, 2010, we completed an amendment and extension of our senior secured credit facility by extending the term of our revolving credit facility and replacing our $128 million term loan A with a larger and longer maturity term loan B facility. As a result of the amendment and extension, as of September 30, 2011, the senior credit facility provides us with a total revolving credit facility size of $622 million until March 16, 2012, when commitments of $66 million will expire. After March 16, 2012, the extended revolving credit facility will provide $556 million of revolving credit and will mature on May 31, 2014. The extended facility will mature earlier on December 15, 2013, if our $130 million tranche B-1 letter of credit/revolving loan facility is not refinanced by that date. Prior to maturity, funds may be borrowed, repaid and re-borrowed under the two revolving credit facilities without premium or penalty.
 
As of September 30, 2011, the senior credit facility also provides a six-year, $148 million term loan B maturing in June 2016, and a seven-year $130 million tranche B-1 letter of credit/revolving loan facility maturing in March 2014. We are required to make quarterly principal payments of $375 thousand on the term loan B, through March 31, 2016 with a final payment of $141 million due June 3, 2016. The tranche B-1 letter of credit/revolving loan facility requires repayment by March 2014. We can enter into revolving loans and issue letters of credit under the $130 million tranche B-1 letter of credit/revolving loan facility. The tranche B-1 letter of credit/revolving loan facility is reflected as debt on our balance sheet only if we borrow money under this facility or if we use the facility to make payments for letters of credit. There is no additional cost to us for issuing letters of credit under the tranche B-1 letter of credit/revolving loan facility. However, outstanding letters of credit reduce our availability to enter into revolving loans under the facility. We pay the tranche B-1 lenders interest equal to the London Interbank Offered Rate (“LIBOR”) plus a margin on all borrowings under the facility. Funds deposited with the administrative agent by the lenders and not borrowed by the Company earn interest at an annual rate approximately equal to LIBOR less 25 basis points.
 
The financial ratios required under the senior credit facility for the remainder of 2011 and beyond are set forth below. As of September 30, 2011, we were in compliance with all the financial covenants and operational restrictions of the senior credit facility.
 
                 
        Interest
    Leverage
  Coverage
Period Ending   Ratio   Ratio
 
December 31, 2011
    3.50       2.55  
Each quarter thereafter
    3.50       2.75  
 
Beginning June 3, 2010, our term loan B and revolving credit facility bear interest at an annual rate equal to, at our option, either (i) LIBOR plus a margin of 475 and 450 basis points, respectively, or (ii) a rate consisting of the greater of (a) the JPMorgan Chase prime rate plus a margin of 375 and 350 basis points, respectively, (b) the Federal Funds rate plus 50 basis points plus a margin of 375 and 350 basis points, respectively, and (c) the Eurodollar Rate plus 100 basis points plus a margin of 375 and 350 basis points, respectively. The margin we pay on these borrowings will be reduced by 25 basis points following each fiscal quarter for which our consolidated net leverage ratio is less than 2.25 for extending lenders and for the term loan B and will be further reduced by an additional 25 basis points following each fiscal quarter for which the consolidated net leverage ratio is less than 2.00 for extending lenders. Our consolidated net leverage ratio was 2.07 and 2.24 as of September 30, 2011 and December 31, 2010, respectively. As a result, the margin we pay on these borrowings was reduced in February 2011 by 25 basis points for extending lenders. However, since the ratio increased during the first quarter to 2.32, the margin we pay on borrowings increased by 25 basis points beginning in May 2011 and remained at such level until August 2011 when it decreased again by 25 basis points.
 
The borrowings under our tranche B-1 letter of credit/revolving loan facility incur interest at an annual rate equal to, at our option, either (i) LIBOR plus a margin of 500 basis points, or (ii) a rate consisting of the greater of (a) the JPMorgan Chase prime rate plus a margin of 400 basis points, (b) the Federal Funds rate plus 50 basis points


13


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
plus a margin of 400 basis points, and (c) the Eurodollar Rate plus 100 basis points plus a margin of 400 basis points. The rate will increase by 50 basis points following each fiscal quarter for which our consolidated net leverage ratio is greater than or equal to 5.00.
 
At September 30, 2011, of the $752 million available under the two revolving credit facilities within our senior secured credit facility, we had unused borrowing capacity of $601 million with $97 million in outstanding borrowings and $54 million in letters of credit outstanding. As of September 30, 2011, our outstanding debt also included $250 million of 81/8 percent senior notes due November 15, 2015, $148 million term loan B due June 3, 2016, $225 million of 73/4 percent senior notes due August 15, 2018, $500 million of 67/8 percent senior notes due December 15, 2020, and $84 million of other debt.
 
On December 9, 2010, we commenced a cash tender offer of our outstanding $500 million 85/8 percent senior subordinated notes due in 2014 and a consent solicitation to amend the indenture governing these notes. The consent solicitation expired on December 22, 2010 and the cash tender offer expired on January 6, 2011. On December 23, 2010, we issued $500 million of 67/8 percent senior notes due December 15, 2020 in a private offering. The net proceeds of this transaction, together with cash and available liquidity, were used to finance the purchase of our 85/8 percent senior subordinated notes pursuant to the tender offer at a price of 103.25 percent of the principal amount, plus accrued and unpaid interest for holders who tendered prior to the expiration of the consent solicitation, and 100.25 percent of the principal amount, plus accrued and unpaid interest, for other participants. On January 7, 2011, we redeemed all remaining outstanding $20 million of senior subordinated notes that were not previously tendered, at a price of 102.875 percent of the principal amount, plus accrued and unpaid interest. To facilitate these transactions, we amended our senior credit agreement to permit us to refinance our senior subordinated notes with new senior unsecured notes. We did not incur any fee in connection with this amendment. The new notes are general senior obligations of Tenneco Inc. and are not secured by assets of Tenneco Inc. or any of our subsidiaries that guarantee the new notes. We recorded $20 million of pre-tax charges in December 2010 and an additional $1 million of pre-tax charges in the first quarter of 2011 related to our repurchase and redemption of our 85/8 percent senior subordinated notes. On March 14, 2011, we completed an offer to exchange the $500 million of 67/8 percent senior notes due in 2020 which have been registered under the Securities Act of 1933, for and in replacement of all outstanding unregistered 67/8 percent senior notes due in 2020. We received tenders from holders of all $500 million of the aggregate outstanding amount of the original notes. The terms of the new notes are substantially identical to the terms of the original notes for which they were exchanged, except that the transfer restrictions and the registration rights applicable to the original notes generally do not apply to the new notes.
 
On August 3, 2010, we issued $225 million of 73/4 percent senior notes due August 15, 2018 in a private offering. The net proceeds of this transaction, together with cash and available liquidity, were used to finance the redemption of our 101/4 percent senior secured notes due in 2013. We called the senior secured notes for redemption on August 3, 2010, and completed the redemption on September 2, 2010 at a price of 101.708 percent of the principal amount, plus accrued and unpaid interest. We recorded $5 million of expense related to our redemption of our 101/4 percent senior secured notes in the third quarter of 2010. The new notes are general senior obligations of Tenneco Inc. and are not secured by assets of Tenneco Inc. or any of our subsidiaries that guarantee the new notes. On February 14, 2011, we completed an offer to exchange the $225 million of 73/4 percent senior notes due in 2018 which have been registered under the Securities Act of 1933, for and in replacement of all outstanding unregistered 73/4 percent senior notes due in 2018. We received tenders from holders of all $225 million of the aggregate outstanding amount of the original notes. The terms of the new notes are substantially identical to the terms of the original notes for which they were exchanged, except that the transfer restrictions and the registration rights applicable to the original notes generally do not apply to the new notes.


14


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
(4)   Income Taxes
 
We evaluate our deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. U.S. GAAP requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and amount of recent losses, the duration of statutory carryforward periods, and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.
 
Valuation allowances have been established for deferred tax assets based on a “more likely than not” threshold. The ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of our deferred tax assets:
 
  •  Future reversals of existing taxable temporary differences;
 
  •  Taxable income or loss, based on recent results, exclusive of reversing temporary differences and carryforwards; and
 
  •  Tax-planning strategies.
 
We reported income tax expense of $21 million and $65 million in the three month and nine month periods ending September 30, 2011, respectively. The tax expense recorded for the first nine months of 2011 differs from the expense that would be recorded using a U.S. Federal statutory rate of 35 percent due to a net tax benefit of $9 million primarily related to U.S. taxable income with no associated tax expense due to our net operating loss (“NOL”) carryforward and income generated in lower tax rate jurisdictions, partially offset by adjustments to prior year income tax estimates and the impact of recording a valuation allowance against the tax benefit for losses in certain foreign jurisdictions. Beginning in 2008, given our historical losses, we concluded that our ability to fully utilize our NOLs was limited due to projecting the continuation of the negative economic environment and the impact of the negative operating environment on our tax planning strategies. As a result of our tax planning strategies which have not yet been implemented and which do not depend upon generating future taxable income, we carry deferred tax assets in the U.S. of $90 million relating to the expected utilization of those NOLs. The federal NOLs expire beginning in tax years ending in 2021 through 2029. The state NOLs expire in various tax years through 2029.
 
If our operating performance improves on a sustained basis, our conclusion regarding the need for a valuation allowance could change, resulting in the reversal of some or all of the valuation allowance in the future. The charge to establish the U.S. valuation allowance also includes items related to the losses allocable to certain state jurisdictions where it was determined that tax attributes related to those jurisdictions were potentially not realizable.
 
We are required to record a valuation allowance against deferred tax assets generated by taxable losses in each period in the U.S. as well as in other foreign jurisdictions. Our future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these jurisdictions until the respective valuation allowance is eliminated. This will cause variability in our effective tax rate.
 
(5)   Accounts Receivable Securitization
 
We securitize some of our accounts receivable on a limited recourse basis in North America and Europe. As servicer under these accounts receivable securitization programs, we are responsible for performing all accounts receivable administration functions for these securitized financial assets including collections and processing of customer invoice adjustments. In North America, we have an accounts receivable securitization program with three commercial banks comprised of a first priority facility and a second priority facility. We securitize original equipment and aftermarket receivables on a daily basis under the bank program. In March 2011, the North American program was amended and extended to March 23, 2012. The first priority facility continues to provide


15


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
financing of up to $110 million and the second priority facility, which is subordinated to the first priority facility, continues to provide up to an additional $40 million of financing. Both facilities monetize accounts receivable generated in the U.S. and Canada that meet certain eligibility requirements, and the second priority facility also monetizes certain accounts receivable generated in the U.S. or Canada that would otherwise be ineligible under the first priority securitization facility. The amendments to the North American program expand the trade receivables that are eligible for purchase under the program and decrease the margin we pay to our banks. We had no outstanding third party investments in our securitized accounts receivable under the North American program at September 30, 2011 and December 31, 2010, respectively.
 
Each facility contains customary covenants for financings of this type, including restrictions related to liens, payments, mergers or consolidation and amendments to the agreements underlying the receivables pool. Further, each facility may be terminated upon the occurrence of customary events (with customary grace periods, if applicable), including breaches of covenants, failure to maintain certain financial ratios, inaccuracies of representations and warranties, bankruptcy and insolvency events, certain changes in the rate of default or delinquency of the receivables, a change of control and the entry or other enforcement of material judgments. In addition, each facility contains cross-default provisions, where the facility could be terminated in the event of non-payment of other material indebtedness when due and any other event which permits the acceleration of the maturity of material indebtedness.
 
We also securitize receivables in our European operations with regional banks in Europe. The arrangements to securitize receivables in Europe are provided under seven separate facilities provided by various financial institutions in each of the foreign jurisdictions. The commitments for these arrangements are generally for one year, but some may be cancelled with notice 90 days prior to renewal. In some instances, the arrangement provides for cancellation by the applicable financial institution at any time upon 15 days, or less, notification. The amount of outstanding third party investments in our securitized accounts receivable in Europe was $140 million and $91 million at September 30, 2011 and December 31, 2010, respectively.
 
If we were not able to securitize receivables under either the North American or European securitization programs, our borrowings under our revolving credit agreements might increase. These accounts receivable securitization programs provide us with access to cash at costs that are generally favorable to alternative sources of financing, and allow us to reduce borrowings under our revolving credit agreements.
 
In our North American accounts receivable securitization programs, we transfer a partial interest in a pool of receivables and the interest that we retain is subordinate to the transferred interest. Accordingly, we account for our North American securitization program as a secured borrowing. In our European programs, we transfer accounts receivables in their entirety to the acquiring entities and satisfy all of the conditions established under ASC Topic 860, “Transfers and Servicing,” to report the transfer of financial assets in their entirety as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under our European securitization programs approximates the fair value of such receivables. We recognized interest expense of less than $1 million in the three month period ending September 30, 2011 and $1 million in the three month period ended September 30, 2010, and $2 million and $3 million for each of the nine month periods ended September 30, 2011 and 2010 respectively, relating to our North American securitization program. In addition, we recognized a loss of $1 million in each of the three month periods ended September 30, 2011 and 2010, respectively, and $4 million and $3 million for the nine month periods ended September 30, 2011 and 2010, respectively, on the sale of trade accounts receivable in our European accounts receivable securitization programs, representing the discount from book values at which these receivables were sold to our banks. The discount rate varies based on funding costs incurred by our banks, which averaged approximately three percent and four percent during the first nine months of 2011 and 2010, respectively.


16


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
(6)   Restructuring and Goodwill Impairment Charge
 
Over the past several years, we have adopted plans to restructure portions of our operations. These plans were approved by our Board of Directors and were designed to reduce operational and administrative overhead costs throughout the business. In 2010, we incurred $19 million in restructuring and related costs, of which $14 million was recorded in cost of sales and $5 million was recorded in depreciation and amortization expense. In the third quarter of 2011, we incurred $4 million in restructuring and related costs, all of which was recorded in cost of sales. For the first nine months of 2011, we incurred $7 million in restructuring and related costs, primarily related to headcount reductions in Europe and Australia and the closure of our ride control plant in Cozad, Nebraska, all of which was recorded in cost of sales.
 
Amounts related to activities that are part of our restructuring plans are as follows:
 
                                                 
    December 31,
                  September 30,
    2010
      2011
  Impact of
      2011
    Restructuring
  2011
  Cash
  Exchange
  Reserve
  Restructuring
    Reserve   Expenses   Payments   Rates   Adjustments   Reserve
    (Millions)
 
Severance
  $ 7       7       (12 )           (1 )   $ 1  
 
Under the terms of our amended and extended senior credit agreement that took effect on June 3, 2010, we are allowed to exclude $60 million of cash charges and expenses, before taxes, related to cost reduction initiatives incurred after June 3, 2010 from the calculation of the financial covenant ratios required under our senior credit facility. As of September 30, 2011, we have excluded $17 million in cumulative allowable charges relating to restructuring initiatives against the $60 million available under the terms of the senior credit facility.
 
On September 22, 2009, we announced that we were closing our original equipment ride control plant in Cozad, Nebraska. The closure of the Cozad plant will eliminate approximately 500 positions. We are hiring at other facilities as we move production from Cozad to those facilities, which will result in a net decrease of approximately 60 positions. Much of the production is being shifted from Cozad to our plant in Hartwell, Georgia.
 
During the transition of production from our Cozad facility to our Hartwell facility, several customer programs, which were planned to phase out, were reinstated and volumes increased beyond the amount in our original restructuring plan. To meet the higher volume requirements, we have taken a number of actions over the past few months to stabilize the production environment in Hartwell including reinforcing several core processes, realigning assembly lines, upgrading equipment to increase output and accelerating our Lean manufacturing activities. Based on the higher volumes, we are adjusting our consolidation plan. Our revised consolidation plan includes temporarily continuing some basic production operations in Cozad, and redirecting some programs from our Hartwell facility to our other North American facilities to better balance production. These actions will take place over the next several quarters. As of September 30, 2011, more than 95 percent of the positions at our Cozad facility have been eliminated.
 
During 2009 and 2010, we recorded $11 million and $10 million, respectively, of restructuring and related expenses related to this initiative, of which approximately $16 million represents cash expenditures. For the first nine months of 2011, we have recorded an additional cash charge of $1 million related to this initiative.
 
During the third quarter of 2011, we recorded $3 million of restructuring and related expenses, all of which represented cash expenditures, related to the permanent elimination of 53 positions in our Australia operations as a result of the continued decline in industry production volumes in that region.
 
In addition, during the third quarter of 2011, we performed an impairment evaluation within the Asia Pacific segment, of our Australian reporting unit’s goodwill balance as a result of continued deterioration of that reporting unit’s financial performance driven primarily by significant declines in industry production volumes in that region. The goodwill impairment test consists of a two-step process. In step one, we compared the estimated fair value for


17


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
our Australian reporting unit to the carrying value of its assets and liabilities to determine if impairment exists. We estimated the fair value of our Australian reporting unit using the income approach which is based on the present value of estimated future cash flows. The income approach is dependent on a number of factors, including estimates of market trends, forecast revenues and expenses, capital expenditures, weighted average cost of capital and other variables. A separate discount rate derived by a combination of published sources, internal estimates and weighted based on our consolidated debt and equity structure, was used to calculate the discounted cash flows of our Australian reporting unit. These estimates are based on assumptions that we believe to be reasonable, but which are inherently uncertain and outside of the control of management. We identified in our step one test that the carrying value of our Australian reporting unit was higher than its fair value which is an indication that impairment may exist which required us to perform step two of the goodwill impairment test to measure the amount of the impairment loss.
 
Step two of the goodwill impairment evaluation required us to calculate the implied fair value of goodwill of our Australian reporting unit by allocating the estimated fair value to the assets and liabilities of this reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the acquisition price. As a result of performing steps one and two of the goodwill impairment test, we concluded that the remaining amount of goodwill related to our Australian reporting unit was impaired and accordingly, we recorded a goodwill impairment charge of $11 million during the third quarter of 2011.
 
(7)   Environmental Matters, Litigation and Product Warranties
 
We are involved in environmental remediation matters, legal proceedings, claims, investigations and warranty obligations that are incidental to the conduct of our business and create the potential for contingent losses. We accrue for potential contingent losses when our review of available facts indicates that it is probable a loss has been incurred and the amount of the loss is reasonably estimable. Each quarter we assess our loss contingencies based on currently available facts, existing technology, and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors and record adjustments to these reserves as required. As an example, we consider all available evidence including prior experience in remediation of contaminated sites, other companies’ cleanup experiences and data released by the United States Environmental Protection Agency or other organizations when we evaluate our environmental remediation contingencies. Further, all of our loss contingency estimates are subject to revision in future periods based on actual costs or new information. With respect to our environmental liabilities, where future cash flows are fixed or reliably determinable, we have discounted those liabilities. All other environmental liabilities are recorded at their undiscounted amounts. We evaluate recoveries separately from the liability and, when they are assured, recoveries are recorded and reported separately from the associated liability in our condensed consolidated financial statements.
 
We are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to current operations. We expense costs related to an existing condition caused by past operations that do not contribute to current or future revenue generation. As of September 30, 2011, we have the obligation to remediate or contribute towards the remediation of certain sites, including one Federal Superfund site. At September 30, 2011, our aggregated estimated share of environmental remediation costs for all these sites on a discounted basis was approximately $18 million, of which $5 million is recorded in other current liabilities and $13 million is recorded in deferred credits and other liabilities in our condensed consolidated balance sheet. For those locations in which the liability was discounted, the weighted average discount rate used was 1.9 percent. The undiscounted value of the estimated remediation costs was $21 million. Based on information known to us, we have established reserves that we believe are adequate for these costs. Although we believe these estimates of remediation costs are reasonable and are based on the latest available information, the costs are estimates and are subject to revision as more information becomes available about the extent of remediation required. At some sites, we expect that other parties will contribute towards the remediation costs. In addition, certain environmental


18


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
statutes provide that our liability could be joint and several, meaning that we could be required to pay in excess of our share of remediation costs. Our understanding of the financial strength of other potentially responsible parties at these sites has been considered, where appropriate, in our determination of our estimated liability. We do not believe that any potential costs associated with our current status as a potentially responsible party in the Federal Superfund site, or as a liable party at the other locations referenced herein, will be material to our condensed consolidated results of operations, financial position or cash flows.
 
We also from time to time are involved in legal proceedings, claims or investigations. Some of these proceedings allege damages against us relating to environmental liabilities (including toxic tort, property damage and remediation), intellectual property matters (including patent, trademark and copyright infringement, and licensing disputes), personal injury claims (including injuries due to product failure, design or warning issues, and other product liability related matters), taxes, employment matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures. For example, one of our Argentine subsidiaries is currently defending against a criminal complaint alleging the failure to comply with laws requiring the proceeds of export transactions to be collected, reported and/or converted to local currency within specified time periods. As another example, we are subject to an audit in 11 states of our practices with respect to the payment of unclaimed property to those states, which could cover over 30 years. We now have practices in place which we believe ensure that we pay unclaimed property as required. We vigorously defend ourselves against all of these claims. In future periods, we could be subject to cash costs or charges to earnings if any of these matters are resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including our assessment of the merits of the particular claim, we do not expect that these legal proceedings or claims will have any material adverse impact on our future consolidated financial position, results of operations or cash flows.
 
In addition, we are subject to a number of lawsuits initiated by a significant number of claimants alleging health problems as a result of exposure to asbestos. In the early 2000’s we were named in nearly 20,000 complaints, most of which were filed in Mississippi state court and the vast majority of which made no allegations of exposure to asbestos from our product categories. Most of these claims have been dismissed and our current docket of active and inactive cases is less than 500 cases nationwide. A small number of claims have been asserted by railroad workers alleging exposure to asbestos products in railroad cars manufactured by The Pullman Company, one of our subsidiaries. The balance of the claims is related to alleged exposure to asbestos in our automotive products. Only a small percentage of the claimants allege that they were automobile mechanics and a significant number appear to involve workers in other industries or otherwise do not include sufficient information to determine whether there is any basis for a claim against us. We believe, based on scientific and other evidence, it is unlikely that mechanics were exposed to asbestos by our former products and that, in any event, they would not be at increased risk of asbestos-related disease based on their work with these products. Further, many of these cases involve numerous defendants, with the number of each in some cases exceeding 100 defendants from a variety of industries. Additionally, the plaintiffs either do not specify any, or specify the jurisdictional minimum, dollar amount for damages. As major asbestos manufacturers continue to go out of business or file for bankruptcy, we may experience an increased number of these claims. We vigorously defend ourselves against these claims as part of our ordinary course of business. In future periods, we could be subject to charges to earnings if any of these matters are resolved unfavorably to us. To date, with respect to claims that have proceeded sufficiently through the judicial process, we have regularly achieved favorable resolutions. Accordingly, we presently believe that these asbestos-related claims will not have a material adverse impact on our future consolidated financial condition, results of operations or cash flows.
 
We provide warranties on some of our products. The warranty terms vary but range from one year up to limited lifetime warranties on some of our premium aftermarket products. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified on OE products. These estimates are established using historical information about the nature, frequency, and average cost


19


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
of warranty claims. We actively study trends of our warranty claims and take action to improve product quality and minimize warranty claims. We believe that the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. The reserve is included in both current and long-term liabilities on the balance sheet.
 
Below is a table that shows the activity in the warranty accrual accounts:
 
                 
    Nine Months
 
    Ended
 
    September 30,  
    2011     2010  
    (Millions)  
 
Beginning Balance January 1,
  $ 33     $ 32  
Accruals related to product warranties
    7       13  
Reductions for payments made
    (13 )     (12 )
                 
Ending Balance September 30,
  $ 27     $ 33  
                 
 
(8)   Earnings Per Share
 
Earnings per share of common stock outstanding were computed as follows:
 
                                 
    Three Months
    Three Months
    Nine Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,
    September 30,
    September 30,
    September 30,
 
    2011     2010     2011     2010  
    (Millions Except Share and Per Share Amounts)  
 
Basic earnings per share —
                               
Net income attributable to Tenneco Inc. 
  $ 30     $ 10     $ 127     $ 57  
                                 
Average shares of common stock outstanding
    59,793,866       59,235,282       59,866,717       59,102,041  
                                 
Earnings per average share of common stock
  $ 0.51     $ 0.17     $ 2.12     $ 0.97  
                                 
Diluted earnings per share —
                               
Net income attributable to Tenneco Inc. 
  $ 30     $ 10     $ 127     $ 57  
                                 
Average shares of common stock outstanding
    59,793,866       59,235,282       59,866,717       59,102,041  
Effect of dilutive securities:
                               
Restricted stock
    227,243       411,115       275,333       417,262  
Stock options
    1,520,367       1,433,522       1,596,228       1,339,790  
                                 
Average shares of common stock outstanding including dilutive securities
    61,541,476       61,079,919       61,738,278       60,859,093  
                                 
Earnings per average share of common stock
  $ 0.49     $ 0.17     $ 2.06     $ 0.94  
                                 
 
Options to purchase 202,009 and 1,385,988 shares of common stock were outstanding as of September 30, 2011 and 2010, respectively, but not included in the computation of diluted earnings per share respectively, because the options were anti-dilutive.


20


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
(9)   Common Stock
 
Equity Plans — We have granted a variety of awards, including common stock, restricted stock, restricted stock units, performance units, stock appreciation rights (“SARs”), and stock options to our directors, officers, and employees.
 
Accounting Methods — We have recorded $1 million and less than $1 million in compensation expense in the three months ended September 30, 2011 and 2010, and $2 million in compensation expense for both the nine months ended September 30, 2011 and 2010, related to nonqualified stock options as part of our selling, general and administrative expense. This resulted in a decrease of $0.01 in basic and diluted earnings per share for both the three month periods ended September 30, 2011 and 2010, respectively, and a decrease of $0.04 in basic and diluted earnings per share for both the nine month periods ended September 30, 2011 and 2010.
 
We immediately expense stock options and restricted stock awarded to employees who are eligible to retire. When employees become eligible to retire during the vesting period, we recognize the remaining expense associated with their stock options and restricted stock.
 
As of September 30, 2011, there was approximately $6 million of unrecognized compensation costs related to our stock option awards that we expect to recognize over a weighted average period of 0.9 years.
 
Compensation expense for restricted stock, restricted stock units, long-term performance units and SARs was $8 million for both the nine month periods ended September 30, 2011 and 2010 respectively, and was recorded in selling, general, and administrative expense in the Condensed Consolidated Statements of Income.
 
Cash received from stock option exercises for the nine months ended September 30, 2011 and 2010 was $4 million, and $2 million, respectively. Stock option exercises in the first nine months of 2011 and 2010 would have generated an excess tax benefit of $3 million and $2 million, respectively. We did not record the excess tax benefit as we have federal and state net operating losses which are not currently being utilized.
 
Assumptions — We calculated the fair values of stock option awards using the Black-Scholes option pricing model with the weighted average assumptions listed below. The fair value of share-based awards is determined at the time the awards are granted which is generally in January of each year, and requires judgment in estimating employee and market behavior.
 
                 
    Nine Months
    Ended
    September 30,
    2011   2010
 
Stock Options Granted
               
Weighted average grant date fair value, per share
  $ 26.13     $ 11.76  
Weighted average assumptions used:
               
Expected volatility
    70.1 %     75.4 %
Expected lives
    4.8       4.6  
Risk-free interest rates
    1.8 %     2.2 %
Dividend yields
    0.0 %     0.0 %
 
Expected volatility is calculated based on current implied volatility and historical realized volatility for the Company.
 
Expected lives of options are based upon the historical and expected time to post-vesting forfeiture and exercise. We believe this method is the best estimate of the future exercise patterns currently available.
 
The risk-free interest rates are based upon the Constant Maturity Rates provided by the U.S. Treasury. For our valuations, we used the continuous rate with a term equal to the expected life of the options.


21


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
Stock Options — The following table reflects the status and activity for all options to purchase common stock for the period indicated:
 
                                 
    Nine Months Ended September 30, 2011  
                Weighted Avg.
       
    Shares
    Weighted Avg.
    Remaining
    Aggregate
 
    Under
    Exercise
    Life in
    Intrinsic
 
    Option     Prices     Years     Value  
                      (Millions)  
 
Outstanding Stock Options
                               
Outstanding, January 1, 2011
    3,129,241     $ 14.43       4.3     $ 68  
Granted
    201,133       45.42                  
Expired
    (56,046 )     3.66                  
Forfeited
    (13,184 )     9.36                  
Exercised
    (125,624 )     17.10               3  
                                 
Outstanding, March 31, 2011
    3,135,520     $ 16.53       4.4     $ 80  
Granted
    2,711       43.51                  
Forfeited
    (23,841 )     14.26                  
Exercised
    (82,166 )     11.50               3  
                                 
Outstanding, June 30, 2011
    3,032,224     $ 16.71       4.2     $ 76  
Granted
    1,649       44.02                  
Forfeited
    (450 )     4.03                  
Exercised
    (115,249 )     8.94               3  
                                 
Outstanding, September 30, 2011
    2,918,174     $ 17.03       4.0     $ 54  
                                 


22


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
 
Restricted Stock — The following table reflects the status for all nonvested restricted shares for the period indicated:
 
                 
    Nine Months Ended
 
    September 30, 2011  
          Weighted Avg.
 
          Grant Date
 
    Shares     Fair Value  
 
Nonvested Restricted Shares
               
Nonvested balance at January 1, 2011
    558,198     $ 11.58  
Granted
    141,036       45.42  
Vested
    (268,891 )     12.00  
Forfeited
    (4,822 )     13.74  
                 
Nonvested balance at March 31, 2011
    425,521     $ 22.51  
Granted
    1,381       43.51  
Vested
    (3,851 )     15.47  
Forfeited
    (7,190 )     23.82  
                 
Nonvested balance at June 30, 2011
    415,861     $ 22.62  
Granted
    1,042       44.02  
Vested
    (3,206 )     15.41  
Forfeited
    (158 )     1.86  
                 
Nonvested balance at September 30, 2011
    413,539     $ 22.74  
                 
 
The fair value of restricted stock grants is equal to the market price of our stock at the date of grant. As of September 30, 2011, approximately $6 million of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 2.1 years.
 
Share Repurchase Program — In May 2011, our Board of Directors approved a share repurchase program, authorizing our company to repurchase up to 400,000 shares of our outstanding common stock over a 12 month period. Our share repurchase program is intended to offset dilution from shares of restricted stock and stock options that were issued in 2011 to employees. We repurchased all of the 400,000 shares through open market purchases, which were funded through cash from operations, as of August 3, 2011 at a total cost of $16 million through this program. These repurchased shares are held as part of our treasury stock which increased to 1,694,692 shares at September 30, 2011 from 1,294,692 shares at December 31, 2010.
 
Long-Term Performance Units, Restricted Stock Units and SARs — Long-term performance units, restricted stock units and SARs are paid in cash and recognized as a liability based upon their fair value. As of September 30, 2011, $10 million of unrecognized compensation costs is expected to be recognized over a weighted-average period of approximately 1.6 years.


23


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
(10)   Pension Plans, Postretirement and Other Employee Benefits
 
Net periodic pension costs (income) and postretirement benefit costs (income) consist of the following components:
 
                                                 
    Three Months Ended September 30,  
    Pension     Postretirement  
    2011     2010     2011     2010  
    US     Foreign     US     Foreign     US     US  
    (Millions)  
 
Service cost — benefits earned during the period
  $ 1     $ 2     $ 1     $ 1     $     $  
Interest cost
    5       5       5       5       2       2  
Expected return on plan assets
    (6 )     (5 )     (5 )     (5 )            
Settlement loss
                4                    
Net amortization:
                                               
Actuarial loss
    1       1             1       1       2  
Prior service cost (credit)
                            (1 )     (2 )
                                                 
Net pension and postretirement costs
  $ 1     $ 3     $ 5     $ 2     $ 2     $ 2  
                                                 
 
                                                 
    Nine Months Ended September 30,  
    Pension     Postretirement  
    2011     2010     2011     2010  
    US     Foreign     US     Foreign     US     US  
    (Millions)  
 
Service cost — benefits earned during the period
  $ 1     $ 5     $ 1     $ 4     $     $ 1  
Interest cost
    15       15       15       14       6       6  
Expected return on plan assets
    (17 )     (15 )     (15 )     (15 )            
Settlement loss
                4                    
Net amortization:
                                               
Actuarial loss
    3       4       2       3       3       4  
Prior service cost (credit)
          1             1       (4 )     (5 )
                                                 
Net pension and postretirement costs
  $ 2     $ 10     $ 7     $ 7     $ 5     $ 6  
                                                 
 
For the nine months ended September 30, 2011, we made pension contributions of $17 million for our domestic pension plans and $16 million for our foreign pension plans. Based on current actuarial estimates, we believe we will be required to make approximately $11 million in contributions for the remainder of 2011. Pension contributions beyond 2011 will be required, but those amounts will vary based upon many factors, including the performance of our pension fund investments during 2011.
 
We made postretirement contributions of approximately $6 million during the first nine months of 2011. Based on current actuarial estimates, we believe we will be required to make approximately $3 million in contributions for the remainder of 2011.
 
The assets of some of our pension plans are invested in trusts that permit commingling of the assets of more than one employee benefit plan for investment and administrative purposes. Each of the plans participating in the trust has interests in the net assets of the underlying investment pools of the trusts. The investments for all our pension plans are recorded at estimated fair value.


24


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
(11)   Acquisitions
 
In August 2011, we purchased the remaining 25 percent equity interest in our Tenneco Automotive (Thailand) Limited emission control joint venture in Thailand for $4 million in cash. As a result of this purchase, our equity ownership of this joint venture investment changed to 100 percent from 75 percent.
 
In January 2010, we purchased an additional 20 percent equity interest in our Tenneco Tongtai (Dalian) Exhaust System Co. Ltd. joint venture investment in China for $15 million in cash. As a result of this purchase, our equity ownership percentage of this joint venture investment increased to 80 percent from 60 percent.
 
(12)   New Accounting Pronouncements
 
In April 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting guidance for transfers of financial assets which changes the criteria that must be met to achieve sales accounting. This amendment removes from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. In addition, this amendment eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. This amendment is effective for a reporting entity’s first interim or annual period beginning on or after December 15, 2011. We do not believe the adoption of this amendment to the accounting guidance for transfers of financial assets on January 1, 2012 will have a material impact on our condensed consolidated financial statements.
 
In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendment includes (1) that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets, (2) provides specific requirements for measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, (3) requires disclosure of quantitative information about unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy, (4) allows the use of a price, that would be received to sell a net asset position for a particular risk or to transfer a net liability position for a particular risk, in measuring the fair value of financial instruments that are managed within a portfolio, (5) in the absence of a Level 1 input a reporting entity should apply premiums or discounts when market participants would do so when pricing an asset or liability and (6) additional disclosure about fair value measurements. This amendment is effective for a reporting entity’s interim and annual periods beginning after December 15, 2011. We do not believe the adoption of this amendment for fair value measurements on January 1, 2012 will have a material impact on the measurement of our financial assets and liabilities. We will add additional fair value disclosures, as required by this amendment, beginning with our first interim reporting period ending March 31, 2012.
 
In June 2011, the FASB issued an amendment to the accounting guidance for the presentation on comprehensive income. This amendment removes one of the three presentation options for presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires either a single continuous statement of comprehensive income or a two statement approach. If a reporting entity elects the two statement approach, this amendment requires consecutive presentation of the statement of net income followed by the statement of other comprehensive income. In addition, this amendment requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. This amendment shall be applied retrospectively and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. We do not believe the adoption of this amendment to the accounting guidance for the presentation of comprehensive income on January 1, 2012 will have a material impact on our condensed consolidated financial statements.
 
In September 2011, the FASB issued an amendment to the accounting guidance for testing goodwill for impairment. This amendment provides a reporting entity the option to first assess qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair


25


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
value of a reporting unit is less than its carrying amount. If the reporting entity’s assessment after considering all events and circumstances is that it is not more likely than not that its fair value is less than its carrying amount, then performing the two-step impairment test is not required. If the reporting entity concludes that it is more likely than not that its fair value is less than its carrying amount then the first step of the two-step impairment test is required. If the carrying amount of the reporting unit exceeds its fair value, then the reporting unit is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We do not believe the adoption of this amendment on January 1, 2012 for testing goodwill for impairment will have a material impact on our condensed consolidated financial statements.
 
In September 2011, the FASB issued an amendment to the accounting guidance relating to employers’ disclosures for multiemployer pension and multiemployer other postretirement benefit plans. The amendment requires additional disclosures including a description of the nature of the plan benefits, a qualitative description of an employer’s responsibility for the obligations of the plan, including benefits earned by employees during employment with another employer and other quantitative information to help readers understand the financial information about the plan such as total plan assets, actuarial present value of accumulated plan benefits and total contributions received by the plan. The amendment is effective for annual periods for fiscal years ending after December 15, 2011. We do not believe the adoption of this amendment on January 1, 2012 will have a material impact on our condensed consolidated financial statements. We will add additional disclosures relating to our participation in multiemployer pension plans beginning with the annual reporting period ending December 31, 2011.
 
(13)   Guarantees
 
We have from time to time issued guarantees for the performance of obligations by some of our subsidiaries, and some of our subsidiaries have guaranteed our debt. All of our existing and future material domestic wholly-owned subsidiaries fully and unconditionally guarantee our senior credit facility and our senior notes on a joint and several basis. The arrangement for the senior credit facility is also secured by first-priority liens on substantially all our domestic assets and pledges of up to 66 percent of the stock of certain first-tier foreign subsidiaries. No assets or capital stock of our direct or indirect foreign subsidiaries secure our senior notes. For additional information, refer to Note 15 of the condensed consolidated financial statements of Tenneco Inc., where we present the Supplemental Guarantor Condensed Consolidating Financial Statements.
 
In March 2011, we entered into two performance guarantee agreements in the U.K. between Tenneco Management Europe Limited (“TMEL”) and the two Walker Group Retirement Plans, the Walker Group Employee Benefit Plan and the Walker Group Executive Retirement Benefit Plan (the “Walker Plans”), whereby TMEL will guarantee the payment of all current and future pension contributions in event of a payment default by the sponsoring or participating employers of the Walker Plans. As a result of our decision to enter into these performance guarantee agreements, the levy due to the U.K. Pension Protection Fund will be reduced. The Walker Plans are comprised of employees from Tenneco Walker (U.K.) Limited and our Futaba Tenneco U.K. joint venture. Employer contributions are funded by both Tenneco Walker (U.K.) Limited, as the sponsoring employer and Futaba Tenneco U.K., as a participating employer. The performance guarantee agreements are expected to remain in effect until all pension obligations for the Walker Plans’ sponsoring and participating employers have been satisfied. The maximum amount payable for these pension performance guarantees is approximately $25 million as of September 30, 2011 which is determined by taking 105 percent of the liability of the Walker Plans calculated under section 179 of the U.K. Pension Act of 2004 offset by plan assets. We did not record an additional liability in March 2011 for this performance guarantee since Tenneco Walker (U.K.) Limited, as the sponsoring employer of the Walker Plans, already recognizes 100 percent of the pension obligation calculated based on U.S. GAAP, for all of the Walker Plans’ participating employers on its balance sheet, which was $6 million and $9 million at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011, all pension contributions under the Walker Plans were current for all of the Walker Plans’ sponsoring and participating employers.


26


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
In June 2011, we entered into an indemnity agreement between TMEL and Futaba Industrial Co. Ltd. (“Futaba”) which requires Futaba to indemnify TMEL for any cost, loss or liability which TMEL may incur under the performance guarantee agreements. The maximum amount reimbursable by Futaba to TMEL under this indemnity agreement is equal to the amount incurred by TMEL under the performance guarantee agreements multiplied by Futaba’s shareholder ownership percentage of the Futaba Tenneco U.K. joint venture. At September 30, 2011 the maximum amount reimbursable by Futaba to TMEL is approximately $4 million.
 
We have issued guarantees through letters of credit in connection with some obligations of our affiliates. As of September 30, 2011, we have guaranteed $54 million in letters of credit to support some of our subsidiaries’ insurance arrangements, foreign employee benefit programs, environmental remediation activities and cash management and capital requirements.
 
Negotiable Financial Instruments — One of our European subsidiaries receives payment from one of its OE customers whereby the accounts receivable are satisfied through the delivery of negotiable financial instruments. We may collect these financial instruments before their maturity date by either selling them at a discount or using them to satisfy accounts receivable that have previously been sold to a European bank. Any of these financial instruments which are not sold are classified as other current assets. The amount of these financial instruments that was collected before their maturity date and sold at a discount totaled $1 million and $6 million at September 30, 2011 and December 31, 2010, respectively. No negotiable financial instruments were held by our European subsidiary as of September 30, 2011 and December 31, 2010, respectively.
 
In certain instances, several of our Chinese subsidiaries receive payment from OE customers and satisfy vendor payments through the receipt and delivery of negotiable financial instruments. Financial instruments used to satisfy vendor payables and not redeemed totaled $19 million and $8 million at September 30, 2011 and December 31, 2010, respectively, and were classified as notes payable. Financial instruments received from OE customers and not redeemed totaled $11 million at both September 30, 2011 and December 31, 2010, respectively. We classify financial instruments received from our OE customers as other current assets if issued by a financial institution of our customers or as customer notes and accounts, net if issued by our customer. We classified $11 million in other current assets at both September 30, 2011 and December 31, 2010, respectively. Some of our Chinese subsidiaries that issue their own negotiable financial instruments to pay vendors are required to maintain a cash balance if they exceed certain credit limits with the financial institution that guarantees those financial instruments. A restricted cash balance was not required at those Chinese subsidiaries at September 30, 2011 and December 31, 2010, respectively.
 
The negotiable financial instruments received by one of our European subsidiaries and some of our Chinese subsidiaries are checks drawn by our OE customers and guaranteed by their banks that are payable at a future date. The use of these instruments for payment follows local commercial practice. Because negotiable financial instruments are financial obligations of our customers and are guaranteed by our customers’ banks, we believe they represent a lower financial risk than the outstanding accounts receivable that they satisfy which are not guaranteed by a bank.
 
(14)   Segment Information
 
We are a global manufacturer with three geographic reportable segments: (1) North America, (2) Europe, South America and India (“Europe”), and (3) Asia Pacific. Each segment manufactures and distributes ride control and emission control products primarily for the automotive industry. We have not aggregated individual operating segments within these reportable segments. We evaluate segment performance based primarily on earnings before interest expense, income taxes, and noncontrolling interests. Products are transferred between segments and geographic areas on a basis intended to reflect as nearly as possible the “market value” of the products.


27


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
The following table summarizes certain Tenneco Inc. segment information:
 
                                         
    Segment
    North
      Asia
  Reclass &
   
    America   Europe   Pacific   Elims   Consolidated
    (Millions)
 
For the Three Months Ended September 30, 2011
                                       
Revenues from external customers
  $ 842     $ 727     $ 204     $     $ 1,773  
Intersegment revenues
    3       43       6       (52 )      
Earnings before interest expense, income taxes, and noncontrolling interests
    46       36       2 (1)           84  
For the Three Months Ended September 30, 2010
                                       
Revenues from external customers
  $ 762     $ 613     $ 167     $     $ 1,542  
Intersegment revenues
    3       44       9       (56 )      
Earnings before interest expense, income taxes, and noncontrolling interests
    42       15       10             67  
At September 30, 2011 and for the Nine Months Then Ended
                                       
Revenues from external customers
  $ 2,567     $ 2,285     $ 569     $     $ 5,421  
Intersegment revenues
    9       122       19       (150 )      
Earnings before interest expense, income taxes, and noncontrolling interests
    170       97       24 (1)           291  
Total assets
  $ 1,473     $ 1,408     $ 528     $ 27     $ 3,436  
At September 30, 2010 and for the Nine Months Then Ended
                                       
Revenues from external customers
  $ 2,105     $ 1,780     $ 475     $     $ 4,360  
Intersegment revenues
    8       115       21       (144 )      
Earnings before interest expense, income taxes, and noncontrolling interests
    128       57       34             219  
Total assets
  $ 1,345     $ 1,450     $ 459     $ 16     $ 3,270  
 
 
(1) Includes a goodwill impairment charge of $11 million related to our Australian reporting unit (see Note 6).
 
(15)   Supplemental Guarantor Condensed Consolidating Financial Statements
 
Basis of Presentation
 
Substantially all of our existing and future material domestic 100% owned subsidiaries (which are referred to as the Guarantor Subsidiaries) fully and unconditionally guarantee our senior notes due in 2015, 2018, and 2020 on a joint and several basis. The Guarantor Subsidiaries are combined in the presentation below.
 
These consolidating financial statements are presented on the equity method. Under this method, our investments are recorded at cost and adjusted for our ownership share of a subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes. You should read the condensed consolidating financial information of the Guarantor Subsidiaries in connection with our condensed consolidated financial statements and related notes of which this note is an integral part.
 
Distributions
 
There are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to us.


28


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF INCOME (LOSS)
 
                                         
    For the Three Months Ended September 30, 2011  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass &
       
    Subsidiaries     Subsidiaries     Company)     Elims     Consolidated  
                (Millions)              
 
Revenues
                                       
Net sales and operating revenues —
                                       
External
  $ 761     $ 1,012     $     $     $ 1,773  
Affiliated companies
    40       126             (166 )      
                                         
      801       1,138             (166 )     1,773  
                                         
Costs and expenses
                                       
Cost of sales (exclusive of depreciation and amortization shown below)
    568       1,090             (166 )     1,492  
Goodwill impairment charge
          11                   11  
Engineering, research, and development
    14       18                   32  
Selling, general, and administrative
    34       65       2             101  
Depreciation and amortization of other intangibles
    18       33                   51  
                                         
      634       1,217       2       (166 )     1,687  
                                         
Other income (expense)
                                       
Loss on sale of receivables
          (1 )                 (1 )
Other income (expense)
    (3 )     2                   (1 )
                                         
      (3 )     1                   (2 )
                                         
Earnings before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
    164       (78 )     (2 )           84  
                                         
Interest expense —
                                       
External (net of interest capitalized)
          2       25             27  
Affiliated companies (net of interest income)
    54       (18 )     (36 )            
Income tax expense
    3       18                   21  
Equity in net income (loss) from affiliated companies
    (89 )           21       68        
                                         
Net income (loss)
    18       (80 )     30       68       36  
                                         
Less: Net income attributable to noncontrolling interests
          6                   6  
                                         
Net income (loss) attributable to Tenneco Inc. 
  $ 18     $ (86 )   $ 30     $ 68     $ 30  
                                         


29


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF INCOME (LOSS)
 
                                         
    For the Three Months Ended September 30, 2010  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass &
       
    Subsidiaries     Subsidiaries     Company)     Elims     Consolidated  
                (Millions)              
 
Revenues
                                       
Net sales and operating revenues —
                                       
External
  $ 699     $ 843     $     $     $ 1,542  
Affiliated companies
    33       125             (158 )      
                                         
      732       968             (158 )     1,542  
                                         
Costs and expenses
                                       
Cost of sales (exclusive of depreciation and amortization shown below)
    655       783             (158 )     1,280  
Engineering, research, and development
    14       16                   30  
Selling, general, and administrative
    42       66       1             109  
Depreciation and amortization of other intangibles
    23       32                   55  
                                         
      734       897       1       (158 )     1,474  
                                         
Other income (expense)
                                       
Loss on sale of receivables
          (1 )                 (1 )
Other income (expense)
    5       (4 )           (1 )      
                                         
      5       (5 )           (1 )     (1 )
                                         
Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
    3       66       (1 )     (1 )     67  
                                         
Interest expense —
                                       
External (net of interest capitalized)
          2       34             36  
Affiliated companies (net of interest income)
    49       (17 )     (32 )            
Income tax expense (benefit)
    1       14                   15  
Equity in net income (loss) from affiliated companies
    57             13       (70 )      
                                         
Net income (loss)
    10       67       10       (71 )     16  
                                         
Less: Net income attributable to noncontrolling interests
          6                   6  
                                         
Net income (loss) attributable to Tenneco Inc. 
  $ 10     $ 61     $ 10     $ (71 )   $ 10  
                                         


30


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF INCOME (LOSS)
 
                                         
    For the Nine Months Ended September 30, 2011  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass &
       
    Subsidiaries     Subsidiaries     Company)     Elims     Consolidated  
    (Millions)  
 
Revenues
                                       
Net sales and operating revenues —
                                       
External
  $ 2,331     $ 3,090     $     $     $ 5,421  
Affiliated companies
    121       383             (504 )      
                                         
      2,452       3,473             (504 )     5,421  
                                         
Costs and expenses
                                       
Cost of sales (exclusive of depreciation and amortization shown below)
    2,013       3,014             (504 )     4,523  
Goodwill impairment charge
          11                   11  
Engineering, research, and development
    42       60                   102  
Selling, general, and administrative
    106       219       3             328  
Depreciation and amortization of other intangibles
    55       101                   156  
                                         
      2,216       3,405       3       (504 )     5,120  
                                         
Other income (expense)
                                       
Loss on sale of receivables
          (4 )                 (4 )
Other income (expense)
    29                   (35 )     (6 )
                                         
      29       (4 )           (35 )     (10 )
                                         
Earnings before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
    265       64       (3 )     (35 )     291  
                                         
Interest expense —
                                       
External (net of interest capitalized)
          4       77             81  
Affiliated companies (net of interest income)
    156       (52 )     (104 )            
Income tax expense
    8       57                   65  
Equity in net income (loss) from affiliated companies
    29             103       (132 )      
                                         
Net income (loss)
    130       55       127       (167 )     145  
                                         
Less: Net income attributable to noncontrolling interests
          18                   18  
                                         
Net income (loss) attributable to Tenneco Inc. 
  $ 130     $ 37     $ 127     $ (167 )   $ 127  
                                         


31


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF INCOME (LOSS)
 
                                         
    For the Nine Months Ended September 30, 2010  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass &
       
    Subsidiaries     Subsidiaries     Company)     Elims     Consolidated  
    (Millions)  
 
Revenues
                                       
Net sales and operating revenues —
                                       
External
  $ 1,919     $ 2,441     $     $     $ 4,360  
Affiliated companies
    95       360             (455 )      
                                         
      2,014       2,801             (455 )     4,360  
                                         
Costs and expenses
                                       
Cost of sales (exclusive of depreciation and amortization shown below)
    1,707       2,323             (455 )     3,575  
Engineering, research, and development
    40       50                   90  
Selling, general, and administrative
    115       189       3             307  
Depreciation and amortization of other intangibles
    66       97                   163  
                                         
      1,928       2,659       3       (455 )     4,135  
                                         
Other income (expense)
                                       
Loss on sale of receivables
          (3 )                 (3 )
Other income (expense)
    14       (2 )     1       (16 )     (3 )
                                         
      14       (5 )     1       (16 )     (6 )
                                         
Earnings (loss) before interest expense, income taxes, noncontrolling interests, and equity in net income from affiliated companies
    100       137       (2 )     (16 )     219  
                                         
Interest expense —
                                       
External (net of interest capitalized)
    (1 )     6       95             100  
Affiliated companies (net of interest income)
    136       (40 )     (96 )            
Income tax expense (benefit)
    5       40                   45  
Equity in net income (loss) from affiliated companies
    104             58       (162 )      
                                         
Net income (loss)
    64       131       57       (178 )     74  
                                         
Less: Net income attributable to noncontrolling interests
          17                   17  
                                         
Net income (loss) attributable to Tenneco Inc. 
  $ 64     $ 114     $ 57     $ (178 )   $ 57  
                                         


32


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
BALANCE SHEET
 
                                         
    September 30, 2011  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass
       
    Subsidiaries     Subsidiaries     Company)     & Elims     Consolidated  
    (Millions)  
 
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $ 2     $ 161     $     $     $ 163  
Receivables, net
    616       1,358       25       (882 )     1,117  
Inventories
    251       370                   621  
Deferred income taxes
    77                   (35 )     42  
Prepayments and other
    29       131                   160  
                                         
Total current assets
    975       2,020       25       (917 )     2,103  
                                         
Other assets:
                                       
Investment in affiliated companies
    412             770       (1,182 )      
Notes and advances receivable from affiliates
    4,144       1,010       5,986       (11,140 )      
Long-term receivables, net
    1       12                   13  
Goodwill
    22       53                   75  
Intangibles, net
    13       20                   33  
Deferred income taxes
    32       22       33             87  
Other
    25       45       29             99  
                                         
      4,649       1,162       6,818       (12,322 )     307  
                                         
Plant, property, and equipment, at cost
    1,013       2,123                   3,136  
Less — Accumulated depreciation and amortization
    (735 )     (1,375 )                 (2,110 )
                                         
      278       748                   1,026  
                                         
Total assets
  $ 5,902     $ 3,930     $ 6,843     $ (13,239 )   $ 3,436  
                                         
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY                                        
Current liabilities:
                                       
Short-term debt (including current maturities of long-term debt)
                                       
Short-term debt — non-affiliated
  $     $ 69     $ 1     $     $ 70  
Short-term debt — affiliated
    210       517       10       (737 )      
Trade payables
    483       813             (115 )     1,181  
Accrued taxes
    21       25                   46  
Other
    126       213       51       (65 )     325  
                                         
Total current liabilities
    840       1,637       62       (917 )     1,622  
                                         
Long-term debt — non-affiliated
          11       1,223             1,234  
Long-term debt — affiliated
    4,678       1,024       5,438       (11,140 )      
Deferred income taxes
          50                   50  
Postretirement benefits and other liabilities
    324       72             4       400  
Commitments and contingencies
                                       
                                         
Total liabilities
    5,842       2,794       6,723       (12,053 )     3,306  
                                         
Redeemable noncontrolling interests
          10                   10  
                                         
Tenneco Inc. Shareholders’ equity
    60       1,089       120       (1,186 )     83  
                                         
Noncontrolling interests
          37                   37  
                                         
Total equity
    60       1,126       120       (1,186 )     120  
                                         
Total liabilities, redeemable noncontrolling interests and equity
  $ 5,902     $ 3,930     $ 6,843     $ (13,239 )   $ 3,436  
                                         


33


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
BALANCE SHEET
 
                                         
    December 31, 2010  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass
       
    Subsidiaries     Subsidiaries     Company)     & Elims     Consolidated  
                (Millions)              
 
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $     $ 233     $     $     $ 233  
Receivables, net
    402       1,106       24       (706 )     826  
Inventories
    221       326                   547  
Deferred income taxes
    103                   (65 )     38  
Prepayments and other
    35       111                   146  
                                         
Total current assets
    761       1,776       24       (771 )     1,790  
                                         
Other assets:
                                       
Investment in affiliated companies
    391             707       (1,098 )      
Notes and advances receivable from affiliates
    4,119       788       5,853       (10,760 )      
Long-term receivables, net
    1       8                   9  
Goodwill
    22       67                   89  
Intangibles, net
    14       18                   32  
Deferred income taxes
    37       21       34             92  
Other
    26       46       33             105  
                                         
      4,610       948       6,627       (11,858 )     327  
                                         
Plant, property, and equipment, at cost
    997       2,112                   3,109  
Less — Accumulated depreciation and amortization
    (713 )     (1,346 )                 (2,059 )
                                         
      284       766                   1,050  
                                         
Total assets
  $ 5,655     $ 3,490     $ 6,651     $ (12,629 )   $ 3,167  
                                         
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY                                        
Current liabilities:
                                       
Short-term debt (including current maturities of long-term debt)
                                       
Short-term debt — non-affiliated
  $     $ 62     $ 1     $     $ 63  
Short-term debt — affiliated
    214       371       10       (595 )      
Trade payables
    367       773             (92 )     1,048  
Accrued taxes
    20       31                   51  
Other
    130       213       47       (84 )     306  
                                         
Total current liabilities
    731       1,450       58       (771 )     1,468  
                                         
Long-term debt — non-affiliated
          11       1,149             1,160  
Long-term debt — affiliated
    4,583       768       5,409       (10,760 )      
Deferred income taxes
          56                   56  
Postretirement benefits and other liabilities
    347       85             4       436  
Commitments and contingencies
                                       
                                         
Total liabilities
    5,661       2,370       6,616       (11,527 )     3,120  
                                         
Redeemable noncontrolling interests
          12                   12  
                                         
Tenneco Inc. Shareholders’ equity
    (6 )     1,069       35       (1,102 )     (4 )
                                         
Noncontrolling interests
          39                   39  
                                         
Total equity
    (6 )     1,108       35       (1,102 )     35  
                                         
Total liabilities, redeemable noncontrolling interests and equity
  $ 5,655     $ 3,490     $ 6,651     $ (12,629 )   $ 3,167  
                                         


34


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF CASH FLOWS
 
                                         
    Three Months Ended September 30, 2011  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass
       
    Subsidiaries     Subsidiaries     Company)     & Elims     Consolidated  
    (Millions)  
 
Operating Activities
                                       
Net cash provided (used) by operating activities
  $ 74     $ 57     $ (51 )   $     $ 80  
                                         
Investing Activities
                                       
Cash payments for plant, property, and equipment
    (14 )     (36 )                 (50 )
Cash payments for software related intangible assets
    (1 )     (3 )                 (4 )
                                         
Net cash used by investing activities
    (15 )     (39 )                 (54 )
                                         
Financing Activities
                                       
Issuance of long-term debt
          1                   1  
Increase (decrease) in bank overdrafts
          (5 )                 (5 )
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt
          8       12             20  
Intercompany dividends and net increase (decrease) in intercompany obligations
    (57 )     13       44              
Purchase of additional noncontrolling equity interest
          (4 )                 (4 )
Distributions to noncontrolling interest partners
          (10 )                 (10 )
Purchase of common stock under the share repurchase program
                (5 )           (5 )
                                         
Net cash provided (used) by financing activities
    (57 )     3       51             (3 )
                                         
Effect of foreign exchange rate changes on cash and cash equivalents
          (21 )                 (21 )
                                         
Increase (decrease) in cash and cash equivalents
    2                         2  
Cash and cash equivalents, July 1
          161                   161  
                                         
Cash and cash equivalents, September 30 (Note)
  $ 2     $ 161     $     $     $ 163  
                                         
 
 
Note:  Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.


35


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF CASH FLOWS
 
                                         
    Three Months Ended September 30, 2010  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass
       
    Subsidiaries     Subsidiaries     Company)     & Elims     Consolidated  
                (Millions)              
 
Operating Activities
                                       
Net cash provided (used) by operating activities
  $ (25 )   $ 65     $ (23 )   $     $ 17  
                                         
Investing Activities
                                       
Proceeds from the sale of assets
    1       1                   2  
Cash payments for plant, property, and equipment
    (11 )     (22 )                 (33 )
Cash payments for software related intangible assets
    (2 )     (1 )                 (3 )
Investments and other
          (1 )                 (1 )
                                         
Net cash used by investing activities
    (12 )     (23 )                 (35 )
                                         
Financing Activities
                                       
Issuance of long-term debt
                225             225  
Debt issuance cost on long-term debt
                (5 )           (5 )
Retirement of long-term debt
          (1 )     (245 )           (246 )
Increase (decrease) in bank overdrafts
          10                   10  
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt
          2       61             63  
Intercompany dividends and net increase (decrease) in intercompany obligations
    35       (22 )     (13 )            
Distribution to noncontrolling interests partners
          (3 )                 (3 )
                                         
Net cash provided (used) by financing activities
    35       (14 )     23             44  
                                         
Effect of foreign exchange rate changes on cash and cash equivalents
          12                   12  
                                         
Increase (decrease) in cash and cash equivalents
    (2 )     40                   38  
Cash and cash equivalents, July 1
    2       144                   146  
                                         
Cash and cash equivalents, September 30 (Note)
  $     $ 184     $     $     $ 184  
                                         
 
 
Note:  Cash and cash equivalents include highly liquid investments with a maturity of three months or less at the date of purchase.


36


Table of Contents

TENNECO INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
 
STATEMENT OF CASH FLOWS
 
                                         
    Nine Months Ended September 30, 2011  
                Tenneco Inc.
             
    Guarantor
    Nonguarantor
    (Parent
    Reclass
       
    Subsidiaries     Subsidiaries     Company)     & Elims     Consolidated  
                (Millions)              
 
Operating Activities
                                       
Net cash provided (used) by operating activities
  $ 226     $ (13 )   $ (169 )   $     $ 44  
                                         
Investing Activities
                                       
Proceeds from sale of assets
    3       1                   4  
Cash payments for plant, property, and equipment
    (44 )     (101 )                 (145 )
Cash payments for software related intangible assets
    (3 )     (7 )                 (10 )
                                         
Net cash used by investing activities
    (44 )     (107 )                 (151 )
                                         
Financing Activities
                                       
Issuance of long-term debt
          5                   5  
Debt issuance cost of long-term debt
                (1 )           (1 )
Retirement of long-term debt
          (1 )     (22 )           (23 )
Increase (decrease) in bank overdrafts
          3                   3  
Net increase (decrease) in revolver borrowings and short-term debt excluding current maturities of long-term debt
          11       97             108  
Intercompany dividends and net increase (decrease) in intercompany obligations
    (180 )     69       111              
Capital contribution from noncontrolling interest partner
          1                   1  
Purchase of additional noncontrolling equity interest
          (4 )                 (4 )
Distribution to noncontrolling interest partners
          (20 )                 (20 )
Purchase of common stock under the share repurchase program
                (16 )           (16 )
                                         
Net cash provided (used) by financing activities
    (180 )     64       169             53  
                                         
Effect of foreign exchange rate changes on cash and cash equivalents
          (16 )                 (16 )
                                         
Increase (decrease) in cash and cash equivalents
    2       (72 )                 (70 )
Cash and cash equivalents, January 1
          233                   233  
                                         
Cash and cash equivalents, September 30 (Note)
  $ 2     $ 161     $